Bloomberg News

NYSE Removed From Bidding for London Metal Exchange

May 15, 2012

Traders work on the trading floor inside the London Metal Exchange in London. Photographer: Jason Alden/Bloomberg

Traders work on the trading floor inside the London Metal Exchange in London. Photographer: Jason Alden/Bloomberg

NYSE Euronext (NYX:US) was removed from the list of buyers of the London Metal Exchange, the largest metals market.

NYSE Euronext, the biggest U.S. exchange owner, was notified of the decision, James Dunseath, an exchange spokesman in London, said yesterday. “We put in a proposal that we thought offered a fair value. We wish the LME well.”

The LME, which handles more than 80 percent of industrial metals futures, received multiple proposals by the May 7 deadline for a takeover, the bourse said May 8. NYSE Euronext, CME Group Inc., Intercontinental Exchange Inc. and Hong Kong Exchanges & Clearing Ltd. made offers for the 135-year old exchange, said seven people who declined to be identified.

“The LME potential deal looks like a fairly complex undertaking and there are other companies that people think were more likely candidates,” said Alex Kramm, an analyst at UBS AG in New York. NYSE Euronext wasn’t necessarily a “frontrunner,” he said by phone yesterday.

Allan Schoenberg, a spokesman for CME in London, and Claire Miller, a spokeswoman at ICE in London, declined to comment whether the exchanges were still in the running for the LME. Chris Evans, a spokesman for the LME, declined to comment.

The LME handled a record $15.4 trillion of contracts in copper and other industrial metals last year, compared with $2.5 trillion in 1999. Metals prices rallied in the past decade as demand from China, the world’s biggest consumer, overwhelmed supplies from mines, attracting a surge of interest from investors. The exchange operates London’s last open-outcry transactions through a 6-meter-wide (20-foot) ring in which traders from 12 entitled companies shout out orders. It also transacts metals by phone and electronically.

LME Floor

NYSE Euronext, based in New York, was prepared to maintain open-outcry trading should it acquire the bourse. The LME would have helped NYSE Euronext expand in Asia. Both exchanges are regulated by the U.K.’s Financial Services Authority, with NYSE Euronext’s London office at the former trading floor of its Liffe division. Liffe and LME also operate a network of warehouses and are investing in clearing to claw back business from LCH.Clearnet Ltd.

NYSE Euronext owns Liffe, Europe’s second-largest derivatives exchange, which trades commodities including coffee, cocoa, sugar and wheat. It operates the New York Stock Exchange, NYSE Arca and the NYSE Amex options markets, as well as equity markets in Paris, Lisbon, Brussels, and Amsterdam, and Liffe in London and Paris. Hong Kong Exchanges is Asia’s largest bourse, CME is the world’s largest futures exchange and ICE operates the second-largest U.S. futures market.

Deadline Passed

The deadline for the latest round of offers for the bourse was May 7. Selected bidders already have been granted access to some information and made presentations to exchange officials, two people, who declined to be identified, said last week.

The LME may be valued at about $1.3 billion, Greenwich, Connecticut-based Equity Research Desk, an adviser to hedge funds, said today, keeping its February estimate.

“The LME can fetch a higher price depending on how much Hong Kong is prepared to pay,” said Diego Perfumo, an analyst at Equity Research Desk, by phone yesterday. “The LME is an attractive asset for China, which is a big consumer of metals. They will be able to influence the price discovery of those commodities through LME’s market structure rules.”

The LME is owned by 70 of its 94 members, including Goldman Sachs Group Inc., JP Morgan Chase & Co. and Citigroup Inc. Any bid will have to be approved by more than 50 percent of shareholders, with the owners of at least 75 percent of shares backing the move.

Plans on Hold

Exchanges around the globe appear to be putting on hold plans to combine, NYSE Euronext Chief Executive Officer Duncan Niederauer, whose deal with Deutsche Boerse AG failed this year, said in an interview with CNBC. “I still think ultimately the destiny for this industry is to have fewer globally integrated exchanges,” he told CNBC on May 14. “That all appears to be on hold for the time being.”

Hong Kong Exchanges is confident about its chances of acquiring the LME, the South China Morning Post reported May 8, citing an interview with Charles Li, chief executive officer. China accounts for about 40 percent of global copper demand, according to Barclays Plc. The LME opened its first Asian office in Singapore in 2010 and started trading reduced-sized metals contracts last year in partnership with Singapore Exchange Ltd.

Scott Sapp, a spokesman for Hong Kong Exchanges, declined to comment on NYSE Euronext’s removal from bidding for the LME.

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net; Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editors responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net; Andrew Rummer at arummer@bloomberg.net


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